India’s Hindustan Petroleum Corp. (HPCL) canceled the purchase of an Iranian oil cargo earlier this month after its insurance company refused to provide coverage for the crude because of U.S. sanctions, three sources with knowledge of the matter said.
HPCL, India’s third-biggest state-owned refiner, renewed its installation insurance, which protects against any accidents at its refinery or storage sites, in early July. However, the new policy would not protect against any incidents involving Iranian oil processed or stored at its refineries, the sources said.
The refiner had planned to load 1 million barrels of Iranian crude onto the Suezmax tanker Ankaleshwar in early July but canceled the purchase after it was unable to sell it on to another buyer, said the sources who declined to be identified because of the sensitivity of the matter.
India is the second-biggest buyer of Iranian crude after China and without insurance coverage to protect their plants, the country’s refineries may have to cut off their imports earlier than anticipated.
The United States said in May it plans to re-impose some sanctions against Iran starting in August, with full sanctions in place by November, after withdrawing from a 2015 accord with Iran limiting its nuclear program.
“HPCL faced problems in lifting cargo from Iran because its annual insurance policy was renewed in July after the U.S. pulled out of the nuclear deal in May,” said one of the sources, adding the company will not be able to lift any Iranian oil.
HPCL’s Iranian imports account for only 20,000 barrels per day (bpd) of its full demand of 316,000 bpd but other Indian refiners that take larger volumes are likely to face the same problem if their annual policy is up for renewal before November.
HPCL did not respond to requests from Reuters for a comment.
Companies have until Nov. 4 to fully wind down activities with Iran or risk exclusion from the U.S. financial system. However, banks, shipping firms and insurance companies are already cutting ties with Iran and without financing or insurance coverage refiners will have to halt their purchases.
Iran had hoped to sell more than 500,000 bpd of oil to India during the current fiscal year that started in April, Oil Minister Bijan Zanganeh said in February.
However, the insurance issues may mean a reduction in imports even as India is intent on continuing dealings with Iran.
“The problem in procuring Iranian barrels appears to be happening much before the Nov. 4 deadline,” said Senthil Kumaran, a senior analyst at consultants FGE. “Most of the reinsurance market is based in the U.S. so without the blessing of the U.S., Iranian oil buyers will find it almost impossible to take and process Iranian cargoes.”
Indian insurers rely on state-run General Insurance Corp. for reinsurance, which depends on western reinsurers to hedge its risk. General Insurance did not reply to a request for comment.
(Reporting by Nidhi Verma; editing by Christian Schmollinger)
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